Though September’s slight dip in inflation announced by the Office for National Statistics on Wednesday morning will have surprised markets, it won’t cheer savers, as inflation remains well above the 2% target.
There are still many structural issues in the economy that could drive prices higher in the months ahead, so don’t take this slight drop-off as a sign we are out of the inflationary woods.
There was growing talk that the Bank of England could raise interest rates before Christmas to contain inflation, but with the cost of living having tailed off this is now slightly less likely, which is another hammer blow for Britain’s savers.
Markets had forecast that inflation was set to remain at 3.2% in September, and Wednesday’s miss means the chances of a rate rise at the Monetary Policy Committee meeting in a fortnight’s time have now almost certainly reduced.
Mike Hardie, head of prices at the ONS, said: “Annual inflation fell back a little in September due to the unwinding effect of last year’s ‘Eat Out to Help Out,’ which was a factor in pushing up the rate in August. However, this was partially offset by most other categories, including price rises for furniture and household goods and food prices falling more slowly than this time last year.”
He continued: “The costs of goods produced by factories rose again, with metals and machinery showing a notable price rise. Road freight costs for UK businesses also continued to rise across the summer.”
Stepping back a little from September’s data, for savers generally it’s been a decade of despair. The Global Financial Crisis, Brexit and the Covid-19 pandemic have been the savings equivalent of an extinction event. To keep returns real right now there are few options other than to move up the risk curve.
Unfortunately, many people aren’t feeling particularly tolerant of risk given the deep economic uncertainty that surrounds us.
The reality is that many of us may not see 5% or higher interest rates again in our lifetimes. The institution so cherished by Brits, their savings accounts, is arguably in terminal decline.
Simon is an independent financial advisor with over 20 years experience in pension planning and wealth management. He’s a regular contributor on Investing Reviews and is often cited in the mainstream media with his views and comments on the state of the economy and the effects on UK investors.